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IS SHORT-TERMISM DRIVING UNDESIRABLE BEHAVIOUR?

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Creative and Innovative

Written by Charlie Mayes, Managing Director, DAV Management

I am always fascinated to read about the rise and fall of various different businesses, what makes for success, and likewise, why some brands suddenly go out of favour and disappear, sometimes as quickly as they appeared.

It seems that, post-recession, most businesses are under intense pressure to ‘do incrementally more with less and quicker’ all the time.  Even though many organisations are continuing to cut costs, they still expect a huge amount of change – new initiatives, new technology, streamlining, or growth in market share – to be delivered more quickly than ever and often with unrealistic funding. I see this as an unsettling mix of short term thinking and behaviour, something of a blunt instrument that can lead to corners being cut and even perhaps to some managers being “economical with the truth” in an attempt avoid the heat and buy some time. The accounting problems at Tesco, for example, might be symptomatic of this.  Senior managers are under so much pressure to keep delivering quickly with less that they don’t undertake the right levels of due diligence, often losing sight of what’s in the best long term interest for the organisation.

This ‘do more with less and quicker’ mantra seems to be prevalent across all general management behaviour in all industries. The focus is on growing, improving results and generally making sure that this quarter’s results are better than the last.  Of course, business is based on this principle and that’s quite right, organisations clearly need to make a profit and grow in the long term.  But I fear that the balance has got out of kilter and the sheer scale of the improvements being demanded by shareholders and senior management is driving a mind-set that is not necessarily healthy for business. At best organisations may not be thinking strategically enough about the full potential of the business and at worst this could lead to moral and legal behaviours that are undesirable.

Irrespective of how we got to this point, the mind-set is now all pervasive. Although it’s not always being driven by top level decision making, it has become almost an accepted principle where managers at all levels feel intense pressure to show progress, normally with increased revenue or profit.

Charlie Mayes - DAV Management

Charlie Mayes – DAV Management

One organisation that I am aware of is being required by its investors to show in excess of 30% year on year growth, which feels unsustainable. In addition, this can lead to stifled creativity and lack of innovation as people will be afraid to experiment in case growth expectations can’t be met; creating a vicious circle and losing the creative spark that drove the growth in the first place.  At Tesco, in just 13 years profits grew more than four-and-a-half times to £3.4 billion in 2010 and it boasted an incredible 30.5 per cent share of the grocery market.  However, within a couple of years, the company suffered the most disastrous six months in its 95-year history.  As the solid profit line  started to drop, it’s not hard to see how managers would have come under pressure and, some decisions were made that can now clearly be seen as being wrong for the business.

Tesco is not alone, there are other examples that are well reported in the press.  Serco had its share of set-backs when introducing the probation and tagging programme. It was accused of overcharging the government by tens of millions of pounds. The problems being experienced at Balfour Beatty’s construction arm is another example. The swift unravelling of the 109-year old company has shocked the City and after a series of profit warnings caused by an unanticipated spike in costs in its UK construction business, Balfour’s chief executive has been replaced. It seems that these and other similar issues bear the hallmark of Enron and other more recent management failures that were at the heart of the financial crisis. Banks and investment houses were pushed to come up with better ways to make more money, where the horizons to deliver were short and the pressure to succeed was intense.

Today, to varying degrees, I see this dynamic almost everywhere I go; although it doesn’t always end in a high profile corporate failure or even in a material short term impact on a company’s performance. Equally, where there is a legal or regulatory transgression, I don’t believe that the people involved are criminal masterminds or, even, fundamentally immoral; however, they do have to make decisions in an overall business environment which has faced six years of economic challenge and continuous pressure to keep costs down whilst improving performance.

Whilst I have no sympathy for those that intentionally break the law, this unrelenting pressure to ‘do more with less and quicker’ might be driving managers to behave in ways that they wouldn’t normally, under different circumstances.  Although, in some cases, this pressure may be top-down generated, I believe it is the wider business environment that is driving this trend. It may seem difficult but I would urge business leaders to recognise that there are times when a more considered, long term approach is needed. So many of us are running so fast and under so much pressure that we make snap decisions and then move on but we need to take a moment, step back and look at the decisions being made;  are they really right for the business? Managers are accountable for the decisions they make and so the right level of due diligence must be undertaken for each and every decision.  At the end of the day all decisions have a consequence, sometimes unintended, so we all need to be sure that our decisions are well-thought through – otherwise your business could be the next headline news for the wrong reasons.

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Sterling gets vaccine boost to hit 8-month high vs euro

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Sterling gets vaccine boost to hit 8-month high vs euro 1

By Joice Alves

(Reuters) – Sterling rose to a fresh eight-month high against the euro on Wednesday as Britain’s faster COVID-19 vaccine rollout than in the European Union offered support to the pound.

Although Britain’s deaths from the coronavirus pandemic passed 100,000 on Tuesday, its faster initial vaccine rollout has fuelled hopes for economic recovery.

Sterling was up 0.3% at 88.28 pence at 1049 GMT, after hitting a fresh eight-month high of against the single market currency.

Graphic: Sterling 27 Jan, https://fingfx.thomsonreuters.com/gfx/mkt/jbyvrnbbbve/Sterling%2027%20Jan.png

Geoffrey Yu, senior EMEA market strategist at BNY Mellon, said “the general theme of UK doing well with vaccinations is playing a role” in lifting the pound, which is “not expensive and not over-owned yet”.

On the other hand, “the euro is clearly being undermined by ongoing concerns over vaccine rollout speed and supply,” Yu added.

Versus the greenback, sterling was flat at $1.3736, not far off a May 2018 high of $1.3759 touched earlier.

Hopes for a large U.S. fiscal stimulus package has fuelled risk sentiment in markets in recent weeks, benefiting sterling. Market participants are expecting Federal Reserve Chair Jerome Powell to renew a commitment to ultra-easy policy.

“It’s FOMC today so the adjustment in dollar positions may be playing a role as well,” Yu said.

As Britain left the bloc in December, the City of London said the capital’s loss of some financial business due to Brexit has not been catastrophic and it will thrive even if the European Union “irrationally” blocks access.

“For now Sterling continues to trade more on hope, vaccines, than current reality,” said Jeremy Stretch, head of G10 FX Strategy at CIBC Capital Markets.

(Reporting by Joice Alves in VARESE, Italy. Editing by Alexander Smith and Andrew Cawthorne)

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Dollar advances as investors shy away from risk

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Dollar advances as investors shy away from risk 2

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar edged higher against a basket of currencies on Monday, as a burst of volatility in stock markets around the globe sapped investors’ appetite for riskier currencies.

Concerns over the timing and size of additional U.S. fiscal stimulus sent major U.S. stock indexes briefly more than 1% lower before they recovered to trade little changed on the day.

The sharp move in stock markets soured FX traders’ appetite for risk, Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto, said.

“Your high beta currencies – currencies that are highly correlated with equity markets and global risk appetites – are tumbling in synchrony with equity indexes,” Schamotta said.

Market sentiment turned more cautious at the end of last week as European economic data showed that lockdown restrictions to limit the spread of the coronavirus hurt business activity.

The U.S. Dollar Currency Index was 0.19% higher at 90.396, after rising as high as 90.523, its strongest since Jan. 20.

The euro was down around 0.28% against the dollar. German business morale slumped to a six-month low in January as a second wave of COVID-19 halted a recovery in Europe’s largest economy, which will stagnate in the first quarter, the Ifo economic institute said on Monday.

The Australian dollar – seen as a liquid proxy for risk – was 0.16% lower against the dollar.

U.S. stocks have scaled new highs in recent sessions even as concerns about the pandemic-hit economy remain. Investors are trying to gauge whether officials in U.S. President Joe Biden’s administration could head off Republican concerns that his $1.9 trillion pandemic relief proposal was too expensive.

Despite the dollar’s recent rebound – the dollar index is up about 1.3% since early January – analysts expect a broad dollar decline during 2021. The net speculative short position on the dollar grew to its largest in 10 years in the week to Jan. 19, according to weekly futures data from CFTC released on Friday.

The U.S. Federal Reserve meets on Wednesday and Chair Jerome Powell is expected to signal that he has no plans to wind back the Fed’s massive stimulus any time soon – news which could push the dollar down further.

Sterling strengthened on Monday against the weaker euro as Britain’s COVID-19 vaccine rollout over the weekend offered support to the British currency.

(Reporting by Saqib Iqbal Ahmed; Editing by Andrea Ricci and Sonya Hepinstall)

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London and New York financial services treated the same, EU says

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London and New York financial services treated the same, EU says 3

By Huw Jones

LONDON (Reuters) – An EU forum for discussing financial services with Britain will be similar to what the United States has, and it must be in place before market access will be considered, the bloc’s financial services chief said on Monday.

Britain’s Brexit trade deal with the EU from Jan. 1 does not cover financial services, leaving its City of London financial center largely cut off from the EU.

Both sides are committed to creating a forum for financial regulatory cooperation by March, but talks have not started yet, the EU financial services commissioner told the European Parliament.

“What we envisage for this framework is similar to what we have with the United States, a voluntary structure to compare regulatory initiatives, exchange views on international developments and discuss equivalence related issues,” Mairead McGuinness told the European Parliament.

U.S. and EU regulators took about four years just to agree on rules on cross-border derivatives.

Trading in euro shares has already left London, along with a chunk in swaps trading. That questions the value of any future EU access given that many banks and trading platforms from the UK have opened units in the bloc.

McGuinness said regulatory cooperation will not be about restoring market access that Britain has lost, nor will it constrain the EU’s unilateral equivalence process.

Equivalence refers to EU access when Brussels deems a non-EU country’s rules are similar enough to the bloc’s.

“Once we agree on our working arrangements, we can turn to resuming our unilateral equivalence assessments… using the same criteria as with all third countries, including anti-money laundering and taxation cooperation,” she said.

Britain plans to amend some EU rules.

“The United Kingdom intention to diverge requires a case-by-case discussion in each area. Equivalence and divergence are polar opposites,” McGuinness said.

“I am optimistic that over time, through cooperation and trust, we will build a stable and balanced relationship with our UK friends.”

(Reporting by Huw Jones; Editing by Dan Grebler)

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